My life in China, Part 29- The concept of Guanxi

As promised in my last post, I wanted to discuss a bit about the concept of Guanxi or the Chinese notion of relationships as capital. All cultures have something similar to Guanxi, but being a collectivist society, I can’t stress enough the importance of building and maintaining relationships in Chinese culture. It is so critical that it was the concept of my Master’s thesis. The topic is complicated and can undoubtedly fill books. One particular work that I reference a bit below and have found to be helpful is Guanxi and Business by Yadong Luo (2007). I will try to summarize the concept in this post.

Two Chinese characters comprise the word Guanxi (关系). The character 关 (guan) generally means a pass or gate, while the character 系 (xi) means a system, line, or connection. Together the word implies a network of social relationships or connections that enables a bilateral flow of personal or social transactions. However, for those who wish to work with the Chinese, Guanxi is far more complex than this definition. Doing business in China requires specific knowledge of the Guanxi concept, but being successful in doing business in China means an ability to master this concept by building and maintaining your own Guanxi.  

The famed sinologist, political scientist, and comparative political expert Lucian Pye defined Guanxi as “friendship with implications of continued exchange of favors.” Pye offers a subtle concept here by implying that the relationship is continual and that the parties involved exchange favors, a vital component of the Guanxi concept. It is more than just friendship or social relationships. Guanxi is an “intricate, pervasive relational network, which the Chinese cultivate energetically, subtly, and imaginatively” (Luo, 2007, pp.2). Furthermore, Guanxi contains mutual obligations, assurances, and understanding and governs Chinese attitudes toward long-term social and business relationships (Luo, pp.2). As we will see, the building of Guanxi is not a quick and impersonal venture usually favored by western businesspeople. It is a long-term and profoundly rooted relationship utilized for long-term business interactions. 

Generally, the Chinese build Guanxi relationships on three bases depending on the extent and closeness of mutual experiences. They include family ties (kinship relationships), familiar persons (e.g., former classmates and colleagues), and strangers. The ease of Guanxi development and the relationship’s strength decreases on these lines, demonstrating that being a foreigner entering China will have the most challenging time developing Guanxi relationships. These relationships will also generally be the weakest. 

We can also classify Guanxi according to the nature and purpose of the interaction generally summarized into three categories: socio-affective, instrumental, and mixed. Socio-affective Guanxi deals with family and family-like relationships. They are close and personal, and for most of us foreigners, we will never experience this type of relationship (unless you marry into and integrate into a Chinese family). It is, however, essential to understand the strength of these relationships. You never want to pit your Guanxi relationship against those of family because you will undoubtedly lose. Instrumental Guanxi refers to interactions based on resource transactions. For the most part, they are purely business. Lastly, mixed Guanxi includes exchanges of both feelings and material benefits between individuals. 

We can also examine Guanxi in a network/ group format or a dyadic perspective. Both ways have their benefits and drawbacks. Looking at each relationship teases out the subtle exchanges between individuals while the network/ group perspective examines how these dyadic relationships interact and form networks. These concepts become particularly important in business negotiations with the Chinese. In negotiations, you will quickly find that negotiators have very little power towards making binding decisions. There is a long chain of relationships behind those closed doors that must be dealt with before an outcome will appear. Hence, when negotiating with the Chinese, efforts should focus on identifying individuals with the most profound Guanxi network rather than the agreement’s actual terms. If you find the right person, anything is possible.

As you can see, there is no simple definition of Guanxi. To give us a better understanding of some of these components, I will use a series of seven words offered by Yadong Luo in his book, Guanxi and Business (2007). I find these words the best in showing how complex Guanxi is as well as defining the concept. 

Guanxi is transferable. If person A is friends with B and B is friends with C, B can introduce or recommend A to C. Although friendship is vital in a Guanxi relationship’s strength, it is not a prerequisite for building a Guanxi relationship. This transferability is also what forms Guanxi’s sense of a network or web. Inroads to relationships can spread over a long chain. When one finds the proper relationship leading to the most profitable benefits, A and C (or whatever letter in the alphabet) can go through the process of cementing and fortifying their relationship. In this way, Guanxi networks can become very complicated and infer that the more Guanxi relations you have, the more access you have to benefits.    

Guanxi is reciprocal. Guanxi exchanges mustn’t move in just one direction. If A does a favor for B, B is obligated to reciprocate that favor back to A. Often, the reciprocation is more significant to keep the balance sheet unbalanced, maintaining the Guanxi relationship (if there is a favor paid back with one of equal value, the Guanxi relationship could end). If B does not reciprocate to A, he/she loses face (a fundamental concept to the Chinese, synonymous with being shamed publically). He/she will be seen as untrustworthy therefore eliminating the Guanxi relationship and making future Guanxi relationships with others difficult.  

Guanxi is intangible. Although Guanxi is very much like a contract, it is not written down on paper and supported by laws such as we commonly see in the Western world. It’s an unwritten code of reciprocity and equity. Disregarding this code will probably not lead to a lawsuit or jail. Still, it will seriously damage one’s social reputation, leading to a humiliating loss of prestige or face and creating a hostile environment for cultivating future Guanxi relationships. This is much more damaging to the Chinese than being sued or even going to jail. The intangibility of Guanxi is part of what makes it so difficult for westerners to understand. There is little strength in a paper bond between individuals in the bureaucratic mess of Chinese political institutions. Therefore, Guanxi is a way to cement relationships without paper contracts.

Guanxi is utilitarian. Although friendship can undoubtedly play a role in the maintenance and strength of Guanxi, as we saw with its transferability, one does not have to be a friend to form a Guanxi relationship. It is not an emotional bond. It connects two (or more) people through the exchange of favors rather than emotion or sentiment. Even though it is preferred to form a Guanxi relationship with a friend, you can also develop Guanxi relationships with strangers, meaning that you can easily break Guanxi relationships if the connection is no longer profitable or the exchange of resources balances out.  

Guanxi is contextual. It is more an art than a science. As Luo states, “Realizing the importance of guanxi and understanding its principles are easy; finding and implementing an appropriate approach to fulfilling guanxi relations is difficult” (pp. 11). It is entirely context-specific. What can be considered a gift according to the typical gift-giving culture in one context can quickly appear as a bribe in another context. Hense, Guanxi can sometimes become avarice or at least perceived as avarice by many westerners. 

Guanxi is a long-term relationship. Many westerners do not understand that a Guanxi relationship is not short-term or isolated to a particular business transaction. It also may not lead to immediate gains. It can span years and sometimes lifetimes and may even move out of the business realm and into the personal realm. It is important to note that the line between business and personal lives is far more opaque in Chinese culture than in Western culture. 

Guanxi is a long-term balance sheet. It could take many years before a favor debt is repaid and is much like putting money in a long-term investment during times of prosperity and then withdrawing during times of need. The Chinese term this concept Renqing, or an unpaid obligation from invoking a Guanxi relationship. Renqing is a form of social capital used to provide an advantage in interpersonal exchanges of favors. It is both utilized to establish a Guanxi relationship and is a consequence of using a Guanxi relationship to one’s advantage. Renqing, therefore, provides the moral foundation for the reciprocity and equity that are implicit in all Guanxi relationships. Guanxi is an endless flow of interpersonal exchanges and reciprocal commitments. Over the past one hundred years, China has had its fair share of natural disasters, political upheavals, and war, leading to the critical need for long-term relationships and the banking of resources. 

Lastly, Guanxi is personal. It belongs to individuals and has no group connotation. If a person brings a Guanxi relationship to an organization and then leaves that organization, they take their Guanxi relationship with them which differentiates Guanxi from inter-organizational networking in western countries. This notion makes Guanxi even more valuable as your relationship system can easily become a bargaining tool and can thus have a monetary value.

Is Guanxi always a good thing? Certainly not, and it mostly comes down to its ambiguity. Like any tool, it can produce excellent results and build great things, but at the same time, it can cut you. Is someone really being friendly, or are they just trying to establish a favor debt? Are they a true friend that enjoys your company, or do they just see you as a rung in their ladder? Should you accept this favor, or will this person come to you down the road to fulfill that debt? Can you even afford it? Are you paying back enough, or are you hurting your reputation? Will the favors stay lawful, or are they beginning to drift into the unlawful? Will accepting this gift make you a slave? 

As you can see, it’s a slippery slope, and if you are not skilled in playing the game, it can lead to severe consequences. Hence, knowing the concept is vitally important to life in Chinese culture and why I think it is an important topic to touch upon here. I spent significant time and energy studying Guanxi’s subtleties in graduate school, yet I am by no means a master. Like my Chinese language skill, I’m a kindergartner, and knowing that is important. Even those deeply in the game make mistakes, and their fall is often drastic. If you have any interest in Chinese politics, you sometimes see this meteor burn, and it can be scary. 

But that’s not my purpose here. My goal is to illuminate the remarkable and fascinating differences you find in the world’s cultures and elucidate some of the reasons why there are often failures in business and politics. In the west, we so often approach China at a cold and surface level, not realizing that type of interaction holds no value for the Chinese. We bring our paper contracts thinking they are binding only to find that the Chinese see them as just paper. We are then surprised that they don’t follow the terms. But what if you build connections and put them in a favor debt with ‘face’ on the line? What would happen then? It’s a fascinating notion.  

Cheers!